CASE LAW NO. 43/2021/AL On the validity of a mortgage contract when the mortgaged property is real estate acquired by the mortgagor from another party but the purchase price has not been fully paid (Please note that this image is not related to the specific case being discussed).

CASE LAW NO. 43/2021/AL

On the validity of a mortgage contract when the mortgaged property is real estate acquired by the mortgagor from another party but the purchase price has not been fully paid

Approved by the Judicial Council of the Supreme People’s Court on February 23^rd, 2021, and published under Decision No. 42/QĐ-CA dated March 12^th, 2021, by the Chief Justice of the Supreme People’s Court.

Source of the Case Law:

The Cassation Decision No. 01/2019/KDTM-GĐT dated January 11^th, 2019, by the Judicial Council of the Supreme People’s Court concerning the business and commercial case of “Credit Contracts Dispute” in Hồ Chí Minh City between the plaintiff, Bank A, and the defendant, Mrs. Nguyễn Thị L; interested parties including Mrs. Phạm Thị Kim H and Mr. Dương Quốc K.

Location of the Case Law’s Content:

Paragraph 2 of the “Court’s Opinion” section.

Summary of the Case Law:

– Case Background:

The contract for the transfer of ownership of residential property and land use rights was notarized. The buyer was issued a certificate of ownership of the residential property and land use rights but had only partially paid for the real estate; the parties had not yet carried out the transfer of the house.

The buyer mortgaged the property to the Bank, registering the mortgage in accordance with legal provisions; the seller was aware of and agreed to the mortgage but later requested the cancellation of the contract for the transfer of ownership of the residential property and land use rights.

– Legal Resolution:

In this case, the mortgage contract must be considered legally effective, and the request to cancel the contract for the transfer of ownership of the residential property and land use rights should not be accepted.

Relevant Legal Provisions:

– Articles 168, 323, 342, 425, 438, 689 of the 2005 Civil Code (corresponding to Articles 161, 298, 318, 423, 440, 502 of the 2015 Civil Code); Articles 439, 692 of the 2005 Civil Code.

– Article 10 of Decree No. 163/2006/ND-CP dated December 29^th, 2006, by the Government on secured transactions.

Keywords:

“Contract for the transfer of ownership of residential property and land use rights”; “Issuance of a certificate of ownership of residential property and land use rights”; “Partial payment for real estate”; “Cancellation of the contract for the transfer of ownership of residential property and land use rights”; “Mortgage contract”; “Mortgage registration”.

CASE DETAILS

In the complaint dated March 1^st, 2011, and statements at the Court, the plaintiff, Bank A (represented the following by Mrs. Trần Thị E), presented the following:

The Bank provided Mrs. Nguyễn Thị L – owner of Nguyễn Tấn Đ Private Trade and Service Enterprise – a total loan of VND 8,000,000,000 under Credit Contract No. 6360-LAV-200900957 dated December 4^th, 2009, the credit contract amendment appendix No. 01/PL/BS/HĐTD dated December 4^th, 2009, and two promissory notes (dated December 4^th, 2009, for VND 7,750,000,000 and December 4^th, 2009, for VND 250,000,000) with an interest rate of 12% per annum for on-time repayment, and 150% of the on-time rate for overdue repayment, with a loan term of 12 months.

Subsequently, the parties signed Credit Contract Appendix No. 6360-LAV-200900957/PLHĐ on December 15^th, 2010, agreeing to adjust the on-time interest rate to 16% per annum. The collateral for the loan included:

– Land use rights over 298.3 m² and a house on Plot No. 7, Map Sheet No. 93, at No. 26Đ, Q Ward, P District, Hồ Chí Minh City, according to the certificate of ownership of residential property and land use rights No. 7332/2008/UB.GCN issued by the People’s Committee of P District, Hồ Chí Minh City on November 7^th, 2008, for Mrs. L.

– Land use rights over 113.16 m² and a house on Plot No. 82, MPT 79, Map Sheet No. 89, located at No. 20/2T, Q Ward, P District, Hồ Chí Minh City, according to the certificate of ownership of residential property and land use rights No. 7331/2008/UB.GCN issued by the People’s Committee of P District, Hồ Chí Minh City on November 7^th, 2008, for Mrs. L.

Mrs. L mortgaged the above properties under Mortgage Contract No. 6360-LCP-2009-00949 dated December 1^st, 2009, which was notarized and the mortgage registered in accordance with legal provisions.

The Bank disbursed a total amount of VND 8,000,000,000 to Mrs. L. During the contract performance, Mrs. L failed to make full payments and, upon maturity, only paid the on-time interest on May 12^th, 2010. As a result, the Bank converted the credit contract and appendices to overdue status.

The Bank filed a lawsuit requiring Mrs. L to repay the outstanding amount as of December 7^th, 2012, which is VND 14,780,416,666, including principal of VND 8,000,000,000, on-time interest of VND 2,879,083,333, and overdue interest of VND 3,901,333,333. If Mrs. L cannot repay the debt, the Bank requests to auction the mortgaged properties to recover the debt.

The defendant, Mrs. Nguyễn Thị L, presented the following:

She acknowledges having executed the credit contract, appendices, and promissory notes, and confirms that as of December 7th, 2012, the outstanding amount owed to the Bank totals VND 14,780,416,666. This amount comprises a principal sum of VND 8,000,000,000, on-time interest of VND 2,879,083,333, and overdue interest of VND 3,901,333,333, as presented by the Bank.

Mrs. L has committed to settling this outstanding debt and accrued interest within 30 days from the effective date of the judgment. In the event of failure to make timely payment, Mrs. L consents to the auction of the mortgaged properties, enabling the Bank to recover the debt.

However, it should be noted that the two properties mortgaged to the Bank were acquired by Mrs. L from Mr. Dương Quốc K and Mrs. Phạm Thị Kim H in 2008 for a total of VND 5,500,000,000. Mrs. L has remitted VND 3,000,000,000 and still owes Mr. K and Mrs. H VND 2,500,000,000.

The sale procedures were duly completed in compliance with applicable legal regulations, and Mrs. L’s name is recorded on the certificate of ownership for the residential properties and land use rights pertaining to these houses. However, Mr. K and Mrs. H continue to administer and utilize these properties since possession has not been transferred.

At the conclusion of 2010, Mr. K and Mrs. H initiated legal proceedings against Mrs. L seeking payment of the aforementioned debt. They have indicated their intention to reclaim ownership of the houses and return the received VND 3,000,000,000 should Mrs. L fail to fulfill her financial obligations. The case is currently pending before the People’s Court of Tân Phú District.

The interested parties:

Mr. Dương Quốc K and Mrs. Phạm Thị Kim H presented the following:

On November 3^rd, 2008, an agreement was entered into between us and Mrs. L for the sale of two properties, identified as No. 26Đ and No. 20/2T, for the sum of VND 5,500,000,000. Mrs. L initially remitted VND 3,000,000,000 and committed to settling the remaining VND 2,500,000,000 by November 3^rd, 2009, as a precondition for the transfer of ownership of the properties.

Subsequently, Mrs. L requested that we facilitate the notarization of the transfer to enable her to utilize the properties as collateral for a bank loan.

Following the loan disbursement by the Bank, Mrs. L defaulted on the balance due for the properties. It was subsequently discovered that the loan extended by the Bank exceeded statutory limits. Presently, we retain possession and administration of both properties and seek the repossession thereof, along with the return of VND 3,000,000,000 previously remitted by Mrs. L.

In its First-instance Business and Commercial Judgment No. 287/2013/KDTM-ST dated March 19^th, 2013, the People’s Court of Hồ Chí Minh City ruled as follows:

The plaintiff’s claim is fully accepted, thereby obligating Mrs. Nguyễn Thị L, proprietor of Nguyễn Tấn Đ Private Enterprise, to settle a total debt owed to Bank A amounting to VND 13,367,083,333 as of March 19^th, 2013.

This sum includes a principal amount of VND 8,000,000,000, on-time interest of VND 921,750,000, overdue interest of VND 4,445,333,333, and interest accruing from March 20^th, 2013, until full repayment of the principal at the overdue interest rate of 24% per annum.

Mrs. Nguyễn Thị L is required to repay the debt within 6 months from the date the judgment takes legal effect. Failure to fully settle the debt within the stipulated period grants Bank A the right to request the auction of the mortgaged properties in order to recover the debt. These properties are detailed as follows:

– Residential property covering 298.30m², situated at Plot No. 7, Map Sheet No. 93, located at 26Đ, Q Ward, P District, Hồ Chí Minh City, as per the certificate of ownership of residential property and land use rights No. 7332/2008/UB.GCN dated November 7^th, 2008, issued by the People’s Committee of P District, Hồ Chí Minh City.

– Residential property covering 113.16m², situated at Plot No. 82, MPT 79, Map Sheet No. 89, located at 20/2T, Q Ward, P District, Hồ Chí Minh City, as per the certificate of ownership of residential property and land use rights No. 7331/2008/UB.GCN dated November 7^th, 2008, issued by the People’s Committee of P District, Hồ Chí Minh City.

On April 2^nd, 2013, both Mrs. Phạm Thị Kim H and Mrs. Nguyễn Thị L lodged appeals against this ruling.

In the Appellate Business and Commercial Judgment No. 171/2013/KDTM-PT dated October 10^th, 2013, the Appellate Court of the Supreme People’s Court in Hồ Chí Minh City ruled to amend the First-instance Judgment as follows:

– To partially accept the plaintiff’s claim, requiring Mrs. Nguyễn Thị L – owner of Nguyễn Tấn Đ Private Trade and Service Enterprise – to pay the plaintiff a total amount of VND 13,367,083,333 as of March 19^th, 2013, including principal of VND 8,000,000,000, on-time interest of VND 921,750,000, overdue interest of VND 4,445,333,333, and interest accrued from March 20, 2013, until the full repayment of the principal at the overdue interest rate as stipulated in the contract.

– To declare invalid the Mortgage Contract No. 6360-LCP-2009-00949 between Bank A – Branch B and Mrs. Nguyễn Thị L – owner of Nguyễn Tấn Đ Private Trade and Service Enterprise – for the properties at No. 26Đ, Q Ward, P District, Hồ Chí Minh City, and No. 20/2T, Q Ward, P District, Hồ Chí Minh City, which was notarized on December 1^st, 2009.

Bank A (Branch B) must return the two certificates of ownership of residential property and land use rights No. 7332/2008/UB.GCN dated November 7^th, 2008, and No. 7331/2008/UB.GCN dated November 7^th, 2008, issued by the People’s Committee of P District to Mrs. Nguyễn Thị L.

On December 18^th, 2013, Bank A filed a request for a cassation review of the Appellate Business and Commercial Judgment mentioned above.

On August 15^th, 2016, the Chief Justice of the Supreme People’s Court issued Decision No. 24/2016/KN-KDTM, protesting the Appellate Business and Commercial Judgment No. 171/2013/KDTM-PT dated October 10^th, 2013, of the Appellate Court of the Supreme People’s Court in Hồ Chí Minh City; requesting the Judicial Council of the Supreme People’s Court to conduct a cassation review, vacated the Appellate Judgment, and remand the case to the High People’s Court in Hồ Chí Minh City for appellate re-trial in accordance with legal regulations.

At the cassation hearing, the representative of the Supreme People’s Procuracy concurred with the cassation protest of the Chief Justice of the Supreme People’s Court.

COURT’S OPINION:

[1] Concerning the principal and interest debts between Bank A and Mrs. Nguyễn Thị L, both parties are in agreement and there is no dispute. The first-instance court’s ruling requiring Mrs. L to pay the Bank a total debt of VND 13,367,083,333 as of March 19^th, 2013, and the interest accrued from March 20, 2013, until the full repayment of the principal at the overdue interest rate of 24% per annum is in accordance with the agreement between the parties.

However, the appellate court’s ruling requiring Mrs. L to pay the Bank a total amount of VND 13,367,083,333 and to continue calculating interest based on the overdue interest rate stipulated in the contract was incorrect because Credit Contract No. 6360-LAV-200900957 dated December 4^th, 2009, and its appendices did not stipulate the interest adjustment.

[2] Regarding the management of mortgaged property: Based on the evidence in the case file, the mortgaged properties consist of the houses and land located at 26Đ and 20/2T, which were transferred to Mrs. L pursuant to the transfer contracts of residential property and land use rights notarized on November 4^th, 2008, by Mr. Dương Quốc K and Mrs. Phạm Thị Kim H.

Mrs. L obtained certificates of ownership for these residential properties and land use rights on November 7^th, 2008, establishing her ownership of these assets and enabling her to mortgage them to Bank A for a loan. Mr. K and Mrs. H were fully informed and consented to Mrs. L mortgaging these properties to Bank A. The mortgage contract was duly notarized, registered, and legally secured, thus possessing legal validity.

The assertion by Mr. K and Mrs. H that Mrs. L has not completed payment for the properties and still owes VND 2,500,000,000, and therefore seeks to annul the transfer contracts and return the received VND 3,000,000,000 from Mrs. L, lacks merit. Should Mrs. L fail to fulfill the remaining payment obligations for the properties, Mr. K and Mrs. H retain the right to pursue further legal action to recover this outstanding amount. Consequently, the first-instance court’s decision granting Bank A the authority to request the auction of the aforementioned properties to recover the debt if Mrs. L fails to make full payment within 6 months from the effective date of the judgment is well-founded and lawful.

The appellate court’s decision to invalidate Mortgage Contract No. 6360-LCP-2009-00949 between Bank A and Mrs. L for the properties at 26Đ and 20/2T, Q Ward, P District, Hồ Chí Minh City, dated December 1^st, 2009, was erroneous. This ruling adversely impacts the legitimate rights and interests of the plaintiff.

[3] Therefore, the protest by the Chief Justice of the Supreme People’s Court requesting the Judicial Council of the Supreme People’s Court to vacate the Appellate Business and Commercial Judgment of the Appellate Court of the Supreme People’s Court in Hồ Chí Minh City is well-grounded and in line with the recommendation of the representative of the Supreme People’s Procuracy.

In light of the foregoing,

IT IS DECIDED:

Pursuant to Point b, Clause 2, Article 337, and Clause 2, Article 343 of the Civil Procedure Code:

1. To accept the Cassation Protest No. 24/2016/KN-KDTM dated August 15^th, 2016, by the Chief Justice of the Supreme People’s Court.
2. To vacate the Appellate Business and Commercial Judgment No. 171/2013/KDTM-PT dated October 10^th, 2013, of the Appellate Court of the Supreme People’s Court in Hồ Chí Minh City concerning the “Credit Contract Dispute” case between the plaintiff, Bank A, and the defendant, Mrs. Nguyễn Thị L; with interested parties being Mrs. Phạm Thị Kim H and Mr. Dương Quốc K.
3. To uphold the First-instance Business and Commercial Judgment No. 287/2013/KDTM-ST dated March 19^th, 2013, of the People’s Court of Hồ Chí Minh City.

CONTENT OF THE CASE LAW:

“[2] Regarding the management of mortgaged property: Based on the evidence in the case file, the mortgaged properties consist of the houses and land located at 26Đ and 20/2T, which were transferred to Mrs. L pursuant to the transfer contracts of residential property and land use rights notarized on November 4^th, 2008, by Mr. Dương Quốc K and Mrs. Phạm Thị Kim H.

Mrs. L obtained certificates of ownership for these residential properties and land use rights on November 7^th, 2008, establishing her ownership of these assets and enabling her to mortgage them to Bank A for a loan. Mr. K and Mrs. H were fully informed and consented to Mrs. L mortgaging these properties to Bank A. The mortgage contract was duly notarized, registered, and legally secured, thus possessing legal validity.

The assertion by Mr. K and Mrs. H that Mrs. L has not completed payment for the properties and still owes VND 2,500,000,000, and therefore seeks to annul the transfer contracts and return the received VND 3,000,000,000 from Mrs. L, lacks merit. Should Mrs. L fail to fulfill the remaining payment obligations for the properties, Mr. K and Mrs. H retain the right to pursue further legal action to recover this outstanding amount. Consequently, the first-instance court’s decision granting Bank A the authority to request the auction of the aforementioned properties to recover the debt if Mrs. L fails to make full payment within 6 months from the effective date of the judgment is well-founded and lawful.

The appellate court’s decision to invalidate Mortgage Contract No. 6360-LCP-2009-00949 between Bank A and Mrs. L for the properties at 26Đ and 20/2T, Q Ward, P District, Hồ Chí Minh City, dated December 1^st, 2009, was erroneous. This ruling adversely impacts the legitimate rights and interests of the plaintiff.”

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